Claiming the Tax Credits You Deserve
What is a Tax Credit?
Tax credit is a term that we all hear, but do you know what it means? There are two types of tax credits – refundable and non-refundable. A refundable tax credit is a credit that will either give you money back in the form of a refund or reduce the amount you have to pay in taxes. A non-refundable tax credit can reduce the amount of tax that you owe, but does not result in a tax refund.
Of the many tax credits that are available, PHI wants you to remember the following tax credits for working families as you go to complete your taxes this year:
| Tax Credits for Working Families — Federal |
| Earned Income Tax Credit |
| Child and Dependent Care Credit |
| Child Tax Credit |
Many states also offer State EITC (PDF) and other tax credits. These credits are calculated when you file your state income taxes.
To find out if you are eligible to receive one of these state and federal tax credits this year and to find out where you can get your taxes done for free, follow these simple steps.
STEP 1: Are you eligible for the FEDERAL Earned Income Tax Credit (EITC)?
Each tax credit has different eligibility requirements. It is important that before you get your taxes done, you know which ones you may be eligible for so you can talk with your tax preparer about them or know what to look for when you do your taxes yourself. Receiving one of these tax credits can mean additional money to start a savings account, pay for car repairs, day care, or purchase a new computer for your family.
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- Earned Income Tax Credit is a refundable tax credit that provides a boost in income to working families. To be eligible, you must:
* Be a U.S. Citizen or a working immigrant with a valid social security number.
* Have worked – full-time or part-time – in 2011.
* If you have children, they must be under 19 (24, if a full-time student) and have lived with you for more than half of 2011.
* Meet the income guidelines detailed below:
| Single, with income less than: | Married, with income less than: | Number of children | Maximum federal EITC, depending on annual income |
| $13,360 | $18,440 | 0 | $464 |
| $36,052 | $41,132 | 1 | $5,122 |
| $40,964 | $40,044 | 2 | $5,122 |
| $43,998 | $49,078 | 3 or more | $5,751 |
- Child Tax Credit (CTC) is a refundable tax credit for working families with an annual income of at least $3,000. The CTC is up to $1,000 per child under age 17 who has lived with you for more than half of 2011. The basic eligibility requirements are the same those for the EITC.
- Child and Dependent Care Credit (CDCC) is a non-refundable tax credit designed to help working families offset the expenses of care for children or dependent adults. Families can claim up to $3,000 in care expenses for one child/dependent and $6,000 for two or more children/dependents, per year.
STEP 2: Get your taxes done for FREE!
Many direct-care workers are eligible to for FREE tax preparation assistance at a Volunteer Income Tax Assistance (VITA) site or through free on-line services starting in mid-January.
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Volunteer Income Tax Assistance (VITA)
VITA sites are run by community-based organizations and staffed by volunteers who trained and certified by the IRS. VITA volunteers provide friendly, quality tax preparation services and make sure that you claim all of the credits you are eligible for – all for FREE!
Starting in January 2012, you can find a free VITA site near you by calling the IRS at 1-800-906-9687.
Do Your Own Taxes – FOR FREE!
If you usually do your own taxes and have access to a computer, you can file both your federal and state income taxes for free using the Beehive site.
To be eligible to use the Beehive you must:
- Have income less than $57,000
- Have a valid email address
- Have a valid Social Security Number or Individual Taxpayer Identification Number (ITIN)
Step 3: Make the most of your return
There are opportunities to help you save more of your money – at tax time and throughout the year! Several organizations that sponsor the free VITA sites also hold workshops to help with saving and planning for your financial future. Some also offer a special savings program that encourages people to save by matching every $1.00 you save with up to $3.00. Ask your tax advisor at your local VITA site for details about these programs.
Why You Should Consider a Free Tax Service. Using one of these options can help you keep more money in your pocket at tax time by avoiding expensive commercial tax preparers and rapid refund loans.
Avoid the trap: Over 70 percent of people eligible for EITC use a paid tax preparer to help them with their taxes. The average cost is between $85 and $150 for e-filing. Many of these places also offer refund anticipation loans (also called “rapid refund”) as a way to get people their money back faster. Though you may get your money back faster, it comes at a high cost, and may have to be repaid if the IRS denies or delays or refund, or if it is less than you expected.
Example: After getting her taxes done at the local tax place in the strip mall, Cindy finds out she will get a refund of $3,300. She is offered a “rapid refund.” This “rapid refund” will cost her a $65 fee and $40 in other processing and application fees. This is in addition to the $185 she paid the preparer to do her taxes. All together, she will pay $290 to get her taxes done and for the “rapid refund” – this is almost 10% of her tax refund! Adapted from the National Consumer Law Center (PDF).
